Mortgage 50% of income?

Question

Why can a mortgage be only 50% of your income?

For many, we pay 90% or more towards rent.

Why so strict for a mortgage?

Seems like the system is designed to make you fail...

Chris Mason · Answer

Hi Jenna,

I'd say that you have it backwards... your landlord is setting you up to fail by allowing you to be in a situation where 90% of your gross income is needed for rent. After taxes, even a person who doesn't eat or need gas money can't make rent in this scenario.

Jeff Dulla · Answer

@Jenna Goldstein To build on what Alex stated but go another route - its to protect you. I saw some of your questions on another thread about jobs. I will spare you the many reasons why a bank has no obligation to lend to everyone and why not everyone should own a home. But I do want to help you understand this rule is to protect you. It would be reckless and completely irresponsible for a lender, honestly, to even lend to you a loan that is 50% of your income. That is typically based on gross income, so before taxes. That doesn't leave one much money to use on other expenses or save.

I would say it is quite the exact opposite of what you stated above. Lending near 50% debt to income ratio or higher would be absolutely setting you up to fail. The bank is trying to do the opposite.

Alex Johnson · Answer

Limiting their risk as a lender. If they were to lend up to 50-90% DTI, a borrower is almost certainly going to default at some point.

Veronica Frieling · Answer

Trulia is definitely incorrect.

And Account Closed is right- one of the reasons for the financial crisis of 2008 is because people received loans they could not afford or had a way of paying back, which resulted in many defaults and foreclosures.

Sometimes the system may seem backwards, and often times it is, but if you are spending 50% on your rent/mortgage without accounting for the cost of living, then that sounds like a pretty stressful life where you'll never be able to get ahead.

Tom S. · Answer

@Jenna Goldstein  Agreed, there must be a typo in those numbers somewhere, regarding owning for $150 /mo.  My very lowest mortgage payment is $500/ mo on a $75k mortgage (20 year).  And that doesn't include the taxes or insurance.

As a landlord, I would never allow the rent to be 90% of income.  Usually 30-40% at the very most.

Stephanie Medellin · Answer

A mortgage on a $30,000 house might be $150 a month, but you won't find that in Los Angeles.  And if houses are $30,000 in a certain area, rent is not going to be $1500.

Mortgage 50% of income?

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